Introduction

Prosecution is one way the Commissioner of Inland Revenue protects the integrity of the tax and social policy systems she is statutorily responsible for. It is an enforcement activity, usually of last resort, applied in conformity with the Solicitor-General's Prosecution Guidelines supplemented by these Guidelines, against those who refuse to comply with their tax or social policy obligations or who abuse benefits. The sanction of criminal conviction and punishment assures compliant taxpayers, who indirectly bear the burden of others non-compliance, that the Commissioner will take enforcement action against non-compliers.

These Guidelines set out:

their link to Inland Revenue's strategic goals and direction

the types of non-compliance that may result in a decision to prosecute

the factors, in addition to those in the Solicitor-General's Guidelines, that may influence a decision to prosecute

the choice of charges

the Commissioner's approach to publicising prosecution results

the Commissioner's approach to measuring prosecution activity.

These Guidelines are designed to ensure a consistent approach to IR prosecutions nationally.

The link to Inland Revenue's strategic goals and direction

Inland Revenue's IR for the future details the Department's strategic direction from 2011. It is directed at:

contributing to the economic and social well-being of New Zealanders by collecting and re-distributing money;

making revenue available to fund government programs through people meeting payment obligations of their own accord;

people receiving entitlements that enable them to participate in society.

Most Inland Revenue customers – represented by the pyramid's two lower levels – try to or do comply with their obligations. IR's main compliance responses are aimed at helping these customers where they err and generally making it easy for them to get it right and hard to get it wrong.

Unfortunately some customers – the pyramid's top two levels - are reluctant to comply. In the worst cases they deliberately and actively evade their responsibilities in breach of their legal responsibilities. In this context tax evasion has been appropriately characterised by the courts as ‘theft from the community.'

IR's first and main response to non-compliant behaviour is education. At the top level of deliberate non-compliance, the Commissioner enforces compliance by prosecuting offenders. The purpose is to create ‘downward pressure' that moves non-compliers from the top of the model to a position lower down.

These Prosecution Guidelines support Inland Revenue's strategic direction and the Commissioner's statutory responsibilities by describing factors designed to ensure that prosecution:

is an appropriate, consistent and fair response for the type and level of non-compliance identified

The types of non-compliance that may result in a decision to prosecute

The Commissioner may prosecute criminal non-compliance in the tax and social policy areas she administers (listed in the schedule to the Tax Administration Act 1994 [‘TAA']), consistently with s6 and 6A of that Act. She may also formulate, where appropriate, charges under other Acts, e.g. the Crimes Act.

The Commissioner works with other law enforcement agencies to deal with non-compliance. Subject to s81 of the TAA and relevant protocols, the Commissioner may refer cases to the Serious Fraud Office or the New Zealand Police.

Types of non-compliance that justify prosecution

Examples of non-compliant behaviours that may justify prosecutions are:

non-filing of returns with intent to evade assessment and payment of liabilities, including child support

falsifying documents intended to be provided to the Commissioner

false representations to the Commissioner (including by concealment of or failure to provide relevant information)

obstruction of the Commissioner in the execution of her duties

misuse of revenue held in trust, such as PAYE, GST, Student Loan deductions, and employee KiwiSaver contributions

failure to make deductions required by law, e.g. PAYE

false refund/deduction/rebate claims against the Commissioner

laundering the proceeds of offences against the Revenue.

The Commissioner may also prosecute third parties for aiding, abetting, or conspiring in, the commission of criminal conduct or for inciting, counselling or procuring tax payers to engage in such conduct.

Voluntary disclosures and their effect on prosecutions

The Commissioner will not prosecute a taxpayer where the taxpayer has made a pre-notification voluntary disclosure as defined in section 141G of the TAA (SPS09/02 paragraphs 9 and 62) in respect of that person's tax position. This is not a rule of law, but a policy decision made to encourage voluntary compliance in the spirit of the reduction in shortfall penalty that accompanies a voluntary disclosure.

For a voluntary disclosure to have non-prosecution as a consequence, it must be a “full voluntary disclosure”, i.e. one that enables the Commissioner to make a correct assessment. If investigation reveals an additional shortfall or does not disclose all the offending, just as the disclosure does not entitle the taxpayer to a reduction in a shortfall penalty (SPS09/02 paragraph 39), it also does not prevent the Commissioner from prosecuting for any offence disclosed by the investigation.

Factors additional to those in the Solicitor-General's Prosecution Guidelines that may influence a decision to prosecute

The Solicitor General's Prosecution Guidelines

The Solicitor-General's Prosecution Guidelines emphasize several points of a prosecution system operating under the rule of law in a democratic society. The first is that the prosecutor must be free of pressure from sources not properly part of the prosecution decision-making process. The second deals with the prosecution decision itself. Under New Zealand's common law adversarial system, a prosecutor must be satisfied of two things: (i) that the Evidential Test is met, i.e. that there is evidence sufficient to provide a reasonable prospect of conviction, and (ii) that the Public Interest test is met, i.e. that only those breaches of the criminal law where the public interest warrants a prosecution will proceed to that step.

The Evidential Test

The Evidential Test is fundamental. There must never be a prosecution without evidence providing a reasonable prospect of conviction.

The Public Interest Test

Factors favouring prosecution

The Solicitor-General's Prosecution Guidelines on the Crown Law website includes an illustrative list of Public Interest considerations. They apply to all Inland Revenue cases. They are not repeated here.

the degree of non-compliance (e.g. the gravity & prevalence of offending)

loss to the Revenue (greater loss = more reason to prosecute)

damage to the integrity of the Revenue (e.g. attempts to undermine the administration of the Revenue Acts)

misuse of corporate entities for a criminal tax purpose (e.g. phoenixing or using multiple entities to facilitate GST fraud)

organised and systematic attacks on the tax or social policy systems, (e.g. planned and sustained programs of tax evasion or false GST claims)

Factors against prosecution are:

the availability of effective alternatives to prosecution (e.g. where a defaulter has made good the losses to the Revenue, has paid any interest, and the educational/compliance/integrity/deterrence aspect is met by imposition (i.e. assessment) of a suitable civil [e.g. evasion, promoter or obstruction shortfall] penalty)

where alternatives to prosecution are available and a prosecution, though still justifiable, would consume resources that could be better used elsewhere.

The choice of charges

Substantive matters

Though generally the TAA is more suited to prosecuting tax evasion (Gilchrist v R [2007] 1 NZLR 499), some tax offending is better dealt with under the Crimes Act (R v Morris (2005) 22 NZTC 19,217). Many offences against the Revenue fall within the definitions of crimes in both Acts. The crimes in Part 10 of the CA are particularly suited to Revenue offending. They deal with generally dishonest conduct, including false representations, crimes involving computers and money laundering. Sections in other Parts may be used as appropriate.

The choice of charges depends on the evidence, the avoidance of technicalities and the ease of explaining specific crimes to juries. Public interest factors also bear on the choice of charges. A serious obstruction of the Commissioner may be more suitably prosecuted as perverting, obstructing or defeating the course of justice under the Crimes Act rather than obstructing the Commissioner under section 143H TAA. A person who phoenixes companies as part of systematic program of tax evasion may be more effectively dealt with by a Crimes Act charge that upon conviction disqualifies the person from being a company director.

Procedural matters

Section 150 of the TAA authorises Inland Revenue, unlike other institutions with prosecution functions, to include more than one of certain TAA charges in a charging document. This provision is used for convenience and administrative ease, as revenue offending often involves multiple repeated conduct, in which only the date of offending is materially different. Each charge remains a separate count. The Commissioner will almost invariably apply this section when charging someone with qualifying TAA offending.

Section 20(2) of the Criminal Procedure Act 2011 (CPA) provides for representative charges. This provision allows multiple offences of the same type to be included in a single count in a charging document if the offending occurs in similar circumstances such that the defendant would be likely to enter the same plea to the charges if they were charged separately, and the number of offences would make it difficult for the court to manage if charged separately but tried together. The Commissioner will consider whether the facts of a case make representative charges appropriate.

In suitable cases the Commissioner may file charges in the alternative, or use the included offence provision of the CPA (section 143).

Categories of offences

The CPA made fundamental changes to criminal procedure. There are now only two types of hearing: judge-alone trials and jury trials. Instead of the old summary/indictable distinction there are now 4 categories of offence, each with slightly different procedures. The crimes that the Commissioner may prosecute are Category 1 (punishable by fines), a few Category 2 offences (punishable by imprisonment for less than 2 years) or Category 3 offences (punishable by imprisonment for 2 years or more).

Category 1 and 2 offences are tried in the District Court before a judge alone. All but one of the offences in sections 143 and 143A of the TAA are Category 1 offences. The exception is section 143A(1)(d), which has a potential sentence of 5 years imprisonment, and which is therefore a Category 3 offence.

Category 3 offences are those punishable by imprisonment for 2 years or more that are not Category 4 offences. Category 3 offences are tried in the District Court unless there is an order transferring the case to the High Court. Defendants may elect trial by jury.

All TAA offences that are not Category 1 offences are Category 2 or 3 offences. The Crimes Act offences that the Commissioner will usually consider are all Category 3 offences.

Publicity

The Commissioner may publicise convictions for tax offences based on public interest, including deterring future non-compliance, encouraging and reinforcing compliant behaviours and maintaining society's perception of the integrity of the tax and social policy systems.

Measuring prosecution activity

The Commissioner will periodically review:

the range and nature of IR prosecution cases

the outcomes of these cases

IR decision-making processes for robustness, impartiality and conformity with the law and IR strategies and responsibilities

the effective and efficient use of our resources in undertaking prosecution activities

the influence of these outcomes on compliance behaviour and protecting the integrity of the tax and social policy systems.